OUTLOOK: Price Signal Summary - Gilts Remain Above recent Lows

• The battle for the worst performing Currency within G10s continues.
• The Kiwi has taken over the Yen as the worst performer, down 1.36% on the day, and NZDUSD will now see the next support at 0.5847, May's low.
• The similar level in the AUDUSD, also May's low, comes at 0.6357 (all prices are according to Bloomberg).

• In the FI space, Bund futures remain in consolidation mode and continue to trade below the Jun 13 high. For now, the latest move down appears to be a correction. Key short-term support to watch lies at 130.12, the Jun 5 low. A break of this level would highlight a stronger reversal and undermine the bullish theme. This would open 129.30, the May 22 low. Key short-term resistance and the bull trigger, has been defined at 131.95, the Jun 13 high.
• A bullish condition in Gilt futures remains intact and the latest sell-off is - for now - considered corrective. Recent gains marked an extension of the breach of resistance at 91.87, the May 20 high. This signals scope for a test of 93.73, a 1.764 projection of the May 22 - 27 - 29 price swing. Note the uptrend is in overbought territory, a deeper pullback would unwind this position. Initial firm support lies at 92.23, the Jun 16 low.

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Developments in the Middle East have dictated movements in short-end EUR rates over the past few weeks, with ECB speakers and regional data taking a backseat. While the inflationary impulse stemming from higher oil prices has led to moderate hawkish repricing in ECB-dated OIS, the risks of Iran closing off the Strait of Hormuz – and thus risking a more severe negative supply shock – appear contained at this stage. Bank of Finland Governor Rehn was nonetheless cognizant of this risk on June 19. 

Other noteworthy developments in ECBspeak over the past two weeks include:

• Vice President de Guindos not necessarily endorsing Executive Board member Schnabel’s view that the impact of Chinese trade diversion is “actually quantitatively quite small”.
• Traditionally dovish members such as Stournaras and Villeroy more openly disclosing a bias towards further easing.
• The announcement of Olaf Sleijpen as the new Dutch National Bank Governor from July 1.